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Drawing On Super To Buy Your First Home

Saving for your first home? In a market where owning your home is increasingly out of reach for many, the First Home Super Saver (FHSS) scheme offers some practical hope. Here we look at how it works.

 

Where super was once locked away until retirement, you can now actively use its tax concessions to save up to $30,000 towards your first home, and then access your savings when you’re ready to buy. But this scheme is not for the faint-hearted, with lots of steps to climb before you get to your new front door.

 

Eligibility

The FHSS scheme is clearly for first home buyers – those who are buying or constructing their first home in Australia. But those buyers must:

-be 18 years or older;
-have never owned a property in Australia (being a freehold interest in real property, a long-term lease or a company title); and
-only apply for the scheme once.

However, there is provision for owners who have previously lost their property through financial hardship to be considered eligible for the scheme.

 

The good news is that there is no limit on the number of those eligible to share in the purchase of the same home under the scheme. So, couples, siblings and friends – as long as they meet the FHSS requirements – can pool their FHSS contributions towards the one purchase.

 

A further caveat is that you either live in the home you’re buying or you intend to do so for at least six months within the first year of ownership.

 

The scheme

The FHSS scheme refers only to contributions made since 1 July 2017. The scheme allows you to release up to $15,000 of voluntary contributions you’ve made to your super in any one financial year, and up to $30,000 in contributions in total, plus all the associated earnings, subject to contribution caps.

 

To be eligible, these contributions:

-are those made by you as the member or by your employer (but do not include compulsory super guarantee contributions – there are other specific exclusions so it is important to check with your adviser); and
-can be made up of concessional and non-concessional contributions, but only 85% of eligible concessional contributions can be released.

 

Get the sequence right

While you’re house hunting, it’s important to be clear on the FHSS process ahead. Once you’ve saved the final amount and, before signing a contract to purchase your home or applying for the release of your FHSS funds, you must apply to the ATO, and obtain, an FHSS determination. This determination will set out the maximum amount that you can release under the scheme.

 

Once you receive the determination you can then make a valid request to the ATO to issue an authority to your super fund for the release of an amount up to the maximum in the determination.

 

Your fund will then pay the released amount to the ATO but this may take about 25 days, so timing can be critical particularly if the funds are needed for the deposit.

 

If eligible, you can enter into a contract to purchase or construct your home either:

-as soon as you make the request to release the funds (rather than when the funds are released); or
-up to 14 days before the date you make this request.

You have up to 12 months after you’ve requested the release (unless more time is allowed by the ATO) to sign a contract to buy it.

 

Once you finally do sign your contract, you must notify the ATO within 28 days that you have done so.

 

All in order

It’s important to note that there’s an ordering rule for release of your super savings.Contributions are counted in the order in which they are made to your fund, from earliest to latest and also non-concessional contributions are counted before concessional contributions.

 

If you decide not to go ahead with the purchase you must notify the ATO within 12 months of making the release request, and either take advantage of a further 12-month extension or recontribute an eligible amount back into super as a non-concessional contribution. Alternatively, if you fail to comply or decide to hang onto your FHSS released amounts they may be subject to 20% FHSS tax.

 

Guidance at an important time

If drawing on your super to buy your first home is right for you, take care not to mess with the rules, or you’ll miss out. We know the traps and can provide expert advice to guide you safely to your front door.

Super “Opt Out” Choice For High Earners

If you’re a high income-earner with multiple employers, you may be aware of potential traps with compulsory super contributions that can lead to some hefty and unfair penalty taxes – and until now there’s been little anyone can do to avoid the problem. Fortunately, proposed new laws will give high income-earners the opportunity to take proactive steps to overcome any penalties.

 

Are you a medical professional or company director hired by multiple organisations who make compulsory super guarantee (SG) contributions on your behalf? Or perhaps you’re simply a high-income professional with an extra employment arrangement on the side, like a university teaching gig or consulting arrangement? If you have more than one “employer” for super purposes, you may benefit from changes to how the SG is administered for high income-earners.

 

What’s the issue?

A person’s concessional contributions (CCs) are capped at $25,000 per annum and include:

compulsory SG contributions
any additional salary-sacrifice amounts
any personal contributions made by the member for which they claim a deduction.

 

Unfortunately, a problem arises when an individual has multiple employers and inadvertently breaches their $25,000 CC cap because they receive compulsory contributions from each of these employers.

 

While an employer is only required to make compulsory contributions of 9.5% on the worker’s earnings up to $55,270 per quarter (or $221,080 per financial year), this applies on a per employerbasis. An employer must make contributions up to these thresholds regardless of how many other compulsory contributions the employee receives from other employers.

 

Example: Susan, a doctor, earns $215,000 p.a. from employer A, and $85,000 p.a. from employer B. Both employers must make contributions of 9.5% on all of Susan’s earnings because both salaries are below the $221,080 p.a. ceiling. This means Susan has total CCs of $28,500 ($20,425 + $8,075), and has breached her $25,000 CC cap.

 

If you contribute above the $25,000 cap, you will personally incur penalty tax on the excess amount at your marginal tax rate less a 15% offset, plus interest charges.

 

New opportunity to “opt out”

Fortunately, under proposed new laws before Parliament, affected employees will be able to “opt out” of receiving compulsory contributions from a particular employer by obtaining a certificate from the Commissioner of Taxation. The certificate will name a particular employer and a particular quarter of the financial year, and will exempt that employer from having to make SG contributions.

 

This is welcome news for high income-earners who may be at risk of breaching their CC cap. Here are some key requirements to know:

-You’ll need to apply for a certificate at least 60 days before the beginning of the relevant quarter.
-The Commissioner will only be able to issue you a certificate if you’re likely to have excess CCs if the certificate is not issued. To make this assessment, the Commissioner can rely on evidence such as past tax return data, employer payroll data and information provided in your application.
-You’ll be able to apply for certificates for multiple employers. However, you must always have at least one employer who’s required to make SG contributions for you.
-Once issued, a certificate cannot be varied or revoked.

 

If you choose to take advantage of this opt-out, you’ll be able to negotiate with the exempted employer to receive additional remuneration in lieu of super contributions (and you won’t need to show evidence of this to the Commissioner). The employer will still be allowed to make SG contributions (eg if negotiations for additional salary fail), but having the certificate in place means the employer will not be penalised if they don’t make contributions.

 

Start planning now

The legislation to enable the opt-out is likely to pass this year, creating some opportunities for 2020 planning. If you’re receiving SG contributions from multiple sources, contact us to begin your remuneration planning and to explore whether the opt-out may benefit you.

ATO Clamping Down On Clothing Deductions

 

Planning to claim some clothing or laundry expenses this tax time? These deductions are on the ATO’s watch list again this year, and there are many traps for the unwary. For example, did you know that non-branded work uniforms are not deductible? Find out what categories are allowed and what records you need to keep.

 

Taxpayers who claim deductions for work-related clothing and laundry expenses may find themselves under the ATO’s microscope this tax time. Even if your claim is relatively small, penalties can apply for making incorrect claims.

 

What clothing is eligible?

If your work-related clothing falls into one of the following three categories, you can claim the purchase cost and the costs of laundering that clothing:

1. Uniforms. To qualify, your uniform must be both unique (designed only for your employer) and distinctive (with your employer’s logo attached, and it must not be available to the public). This means you can’t make claims for generic, non-branded uniforms. And if your uniform is compulsory, you may also be able to claim shoes, socks and stockings provided they’re an essential part of the uniform and their characteristics (such the required colour, style and type) are outlined in your employer’s uniform policy.

Non-compulsory uniforms have much tighter rules, so check with your adviser before claiming.

2. Occupation-specific clothing. This is clothing that is unique to your occupation, is not “everyday” in nature and allows the public to identify your occupation. Examples include a chef’s checked trousers or a barrister’s robes. In contrast, a bartender’s black trousers or a swimming instructor’s swimwear wouldn’t be allowable.

3. Protective clothing. To be eligible, the clothing must offer a sufficient level of protection against injury or illness in your work setting. Typical examples include high-visibility clothing, steel-capped boots, non-slip shoes, smocks/aprons and fire-resistant clothing.

 

The ATO is particularly concerned that many taxpayers incorrectly claim for ordinary clothing, like suits or black work trousers. It says the following are not valid reasons for deducting clothing:

 

-Your employer requires you to wear a certain colour (eg trousers must be black).
-You bought formal clothes to wear to work functions such as awards nights where you represented your employer.
-You bought clothes just to wear to work.

 

Record-keeping

 

For total clothing and laundry claims of up to $150, you aren’t required to keep detailed records. However, the ATO stresses that taxpayers aren’t “automatically” entitled to a $150 deduction – you must have actually incurred the expenses you claim. The ATO can still ask you to substantiate your claim, and can contact your employer to verify its clothing requirements.

 

If your total claim is under $150, you can calculate your laundry claim using a simple rate of $1 per load where all the clothing is work-related, and 50 cents per load where other clothes are part of the load.

If your total claim for clothing and laundry exceeds $150 (and your total claim for work-related expenses exceeds $300), you’ll need to keep receipts.

 

To prove your laundry costs, you’ll need to keep a diary for a representative one-month period. Your adviser can help you ensure you have the correct records in place.

 

Reimbursements and allowances

To claim a deduction, you must have incurred the expense yourself. So, if your employer reimburses you for an expense, you can’t deduct that amount.

On the other hand, if you receive a clothing allowance you must declare that allowance in your tax return. You can then deduct your costs for eligible clothing, but only the amount you actually spent.

 

Take the stress out of tax time

Talk to us for expert assistance with all of your work-related expense claims. We’ll help you claim everything you’re entitled to, while keeping the ATO happy.

Hiring Independent Contractors: Do You Need To Pay Super?

Your business may be required to make superannuation contributions for some independent contractors, even if they have an Australian Business Number (ABN). Contractors hired under a contract “principally for labour” are captured – but what does that mean? Find out what test the ATO applies and check whether your business has its super obligations covered.

 

Hiring independent contractors can be a flexible staffing solution for many businesses, not only to meet fluctuating workloads but also to help fill gaps with specific skills. But did you know that some workers who are genuinely independent contractors are still entitled to compulsory superannuation contributions?

 

If a worker is not an employee in the general sense but is hired under “a contract that is wholly or principally for the labour of the person”, the worker is deemed an employee for super purposes, even if they have an ABN.

 

This means the hirer must make superannuation guarantee (SG) contributions of 9.5% (in relation to the part of the contract that is for labour). Hirers can’t meet this obligation simply by paying the worker an additional 9.5% – they must actually make contributions to the worker’s superannuation fund.

 

So what sort of contracts are captured? The ATO’s view is that a contract is “wholly or principally for labour” when three key requirements are all met.

 

First, the person must be paid “mainly” for their labour (if not entirely), and the ATO interprets this as “more than half the dollar value” of the contract being for labour. Labour includes not only physical work, but also mental and artistic effort.

 

The second requirement is that the person is paid for their labour, not to achieve a result. Being paid by the hour suggests the person is paid for their labour. In contrast, when a person is paid a fixed sum for a specific output, this suggests they’re paid for a result.

 

Third, the person must personally perform the work and must not be able to delegate to someone else. The ATO notes that many contractors are often hired based on their personal skills, qualifications and experience, so many contractors will typically be unable to delegate their work.

 

What types of work can this affect?

All kinds of workers can be captured. Typical examples might include freelancers such as programmers, editors, graphic designers or administrative support workers who are paid by the hour (not for a specific result) and can’t delegate the work to someone else. Similarly, labourers and other contractors performing physical work could be captured.

 

The rule can also extend to individuals in sophisticated business structuring arrangements. In a recent decision (Moffet v Dental Corporation Pty Ltd), the Federal Court found that a dentist who had sold his dental practice to a third party and continued to work as a dentist for that practice was an independent contractor, but had been working under a contract “wholly or principally for labour”. The new dental practice owners were therefore required to make minimum SG contributions for him.

 

The dentist was earning a percentage commission of the fees collected from patients, but was also contractually required to pay a “shortfall” amount to the dental practice in the event the practice’s annual cash flow fell below a set target – a risk not usually born by a worker in an employment-like arrangement. This case illustrates how even individuals like former business owners who agree to perform services under complex contractual arrangements can potentially be entitled to SG contributions.

 

Not sure about your contractors?

Don’t wait for the ATO to come knocking. Contact us today for assistance in reviewing your contractor arrangements and ensure your business is protected.

Dealing With The ATO: Simple Tips For Taxpayers

Being a smart taxpayer means knowing what resources are available to you and understanding how the ATO deals with individuals as tax problems arise. Here are three simple things all individuals can do to help keep their tax affairs as stress-free as possible this tax time.

 

Sometimes, the way we approach tax matters can end up making a big difference to our bottom line and stress levels. Here are three tips to help individual taxpayers achieve a better outcome when lodging and dealing with the ATO.

 

Tip one: Get help with debts early

 

If you’re experiencing financial difficulties, there are a number of ways the ATO can assist. If you can’t pay your tax bill, the ATO encourages you to contact them early to discuss your options. This might include:

Payment plans: In 2017–2018 the ATO negotiated 226,000 payment plans to allow taxpayers to pay in instalments. For tax bills under $100,000 you can set up a payment plan online through myGov, or through your tax agent. For bigger debts, contact the ATO to discuss a plan.

Debt relief: The ATO has power to release an individual from their tax bill (in part or in full) where paying the bill would leave them unable to afford food, clothing, accommodation, medical treatment, education or other necessities. In 2017–2018, the ATO granted 2,174 full or partial releases.

 

A good tip for anyone having trouble paying their tax bill is to stay on top of their lodgment obligations. Even if you can’t pay, you should still lodge your tax returns on time (and any business activity statements).

 

Not only will you show the ATO that you’re aware of your obligations and making an effort to comply, you’ll avoid penalties for non-lodgment.

 

Tip two: Stay off the ATO’s radar

 

No one wants to be audited, so it pays to know the “red flags” the ATO looks for when analysing its increasingly vast data sources. Understanding these risk areas can also help you self-identify any mistakes you might have accidentally made, or areas where it’s worth getting professional tax advice. For individuals, the ATO looks closely for:

-work-related expense claims that are unusually high or out of the ordinary, especially in relation to clothing, cars, travel and self-education;
-rental expenses, especially those inconsistent with rental income or other information the ATO holds about the property;
-undeclared capital gains from property sales, the Australian share market and cryptocurrency;
-undeclared income (eg cash payments or income from foreign sources); and
-taxpayers who don’t lodge returns on time.

 

Tip three: Manage disputes efficiently

 

There are many options for resolving tax disputes, ranging from lodging an objection, seeking external review, alternative dispute resolution and litigation. However, the ATO wants to resolve tax disputes quickly and fairly. It says in the last five years, there has been a 60% reduction in Administrative Appeals Tribunal applications made by taxpayers against its decisions.

 

To achieve an efficient resolution, individual taxpayers should consider taking advantage of the ATO’s “in-house” facilitation service. This gives individuals (and small businesses) free access to an impartial ATO mediator who will take the taxpayer and ATO case officers through the issues in dispute and attempt to reach a resolution. It’s a voluntary process and can be undertaken at any time from the early audit stage up to and including the litigation stage. If the mediation fails, your usual review and appeal rights aren’t affected at all. It may not solve the problem in every case, but if the facilitation is successful it could save you time, stress and money.

 

Need help with a tax problem?

We’re here to support you in all of your dealings with the ATO. Whether it’s an unpaid tax debt, a disputed assessment or a complicated deduction you’re just not sure about claiming, our experts will guide you every step of the way and help you achieve the best possible outcome.

Changes Ahead For Inactive Super Accounts: Are You Affected?

Got an old super fund account you haven’t touched for years? New rules mean “inactive” accounts (ie no contributions or rollovers for 16 months) will lose their insurance coverage from 1 July 2019 – unless you want to keep your insurance and take action now. Low-balance accounts may even be transferred to the ATO. Find out if you’re affected and what steps you might need to take.

 

This year’s Productivity Commission inquiry into superannuation highlighted concerns that many Australians’ super benefits are being eroded by fees and inappropriate insurance premiums. The government has now passed laws to force superannuation funds to take action – in some cases by cancelling insurance policies or paying benefits over to the ATO for consolidation. While the reforms will undoubtedly benefit many Australians, some members who wish to prevent unwanted action on their account may need to take action.

 

The new laws broadly take effect from 1 July 2019 and apply to “MySuper” and choice products (eg retail and industry fund accounts), but don’t apply to SMSF trustees or small APRA funds.

 

Fees reform

The new laws ban superannuation funds from charging exit fees when a member wants to leave the fund, making it easier for members to close and consolidate their super accounts.

 

For member account balances below $6,000, funds are also prohibited from charging annual administration and investment fees totalling more than 3% of the member’s account balance.

 

Insurance changes

Currently, many funds offer insurance on a default “opt-out” basis. While insurance is beneficial to many Australians (eg for death, permanent disablement or income protection), the government is concerned that some members are signed up for inappropriate or multiple insurance policies (eg from having accounts across multiple superannuation funds) and their super is being eroded by the premiums deducted from their accounts. Members are sometimes not fully aware of the costs and benefits involved.

 

Under the new laws, funds may not provide insurance for members of accounts that have been “inactive” (ie have not received any contributions or rollovers) for at least 16 months, unless specifically directed by the member. This means many existing insurance policies will be cancelled from 1 July 2019.

 

Funds were supposed to contact potentially affected members by 1 May 2019, but all members should check for themselves by asking:

 

-Do I have an “inactive” account? This commonly includes workers with one or more old accounts from a previous job, parents taking time out of the workforce to care for children and even SMSF members who also keep an old public offer account open just for the insurance coverage.

-What insurance am I signed up to? How much am I paying annually in premiums, and what is the insured amount? Do I hold multiple policies for the same insurance?

-Do I want to keep the insurance cover? Your needs are unique and depend on your own financial and personal circumstances. If in doubt, seek professional advice.

 

If you wish to keep the insurance policy, you must make an election in writing. Contact your fund if you’re unsure how to do this. You can make an election before 1 July.

 

Consolidating inactive low-balance accounts

Inactive accounts with balances below $6,000 will be paid over to the ATO, who will then take action to consolidate the person’s super into a single account (or pay the benefits to the member directly if they are old enough to qualify or, if the member has died, to their beneficiaries or estate).

 

Even if your low-balance account has not received any contributions or rollovers for 16 months, the account will not be deemed “inactive” if you have taken actions such as changing investment options, changing insurance coverage or making or amending a binding nomination. You can also elect in writing to the ATO not to be treated as an inactive account member.

 

Get your super in order 

Now is a great time for superannuation members to take stock of their accounts and insurance arrangements. Contact us if you need assistance with any of the upcoming changes.

Black Economy Taskforce: Who Could Be Included

 

In a bid to crack down on tax evasion, the Government has proposed to extend the taxable payment reporting system to two new high risk sectors identified by the Black Economy Taskforce: cleaning services and couriers. The Government cited the improved tax compliance in the building and construction industry as a model of what can be achieved in newly targeted sectors. We will keep you up to date with developments in this area as legislation is enacted.

 

The proposed new laws will require entities that provide courier or cleaning services to report to ATO details of transactions involving contractors. According to ATO guidance, contractors include sole traders (individuals), companies, partnerships, or trusts.

 

For couriers, the proposal captures any service where an entity collects goods (ie, packages, letters, food, flowers, or any other goods) and delivers them to another location.

 

The Government is hoping the imposition of additional compliance will encourage tax compliance, particularly in the food delivery market, which is gaining in popularity.

 

Similarly, cleaning services have also been broadly defined in the proposal to refer to any service where a structure, vehicle, place, surface, machinery or equipment has been subject to a process in which dirt or similar material has been removed from it.

 

What will you need to declare?

If you employ couriers or cleaners

Entities captured by this measure will need to lodge an annual report to the ATO detailing each contractor’s ABN, name, address, gross amount paid for the financial year (including GST) and the total GST included in the gross amount that was paid. If this applies to you and you employ couriers or cleaners you may also be required to provide additional information, such as the contractor’s phone number, email address and bank account details. In essence, companies such as deliveroo, ubereats, foodora, as well as a host of other players, could face the increased compliance costs of having to lodge hundreds, if not thousands, of these reports to the ATO each year.

 

If you contract as a courier or cleaner

If you are a courier or a cleaner (and you provide contract services), the data collected about you will be used in data-matching programs to ensure that all of your income is reported correctly to the ATO. If you are contracted to a delivery company or a cleaning company you will need to keep careful records of what you are being paid. This is particularly important if you only work for these companies on an occasional or part-time basis.

 

How about the timing?

Should this proposal pass as law, the first annual report will be for the 2018–2019 financial year.

 

What to do next

Any relevant business that is required to report will need to collect relevant information from 1 July 2018, with the report due by 28 August 2019. Information from the reports (which will be data matched with information provided by contractors) will apply on tax returns for the 2018–2019 income year. Speak to us if you think this could be relevant to you.

Travel Allowance Or LAFHA: Which Applies To You

 

Travel Allowance or living-away-from-home allowance (LAFHA)? Understanding the difference between these two allowances can be complex, particularly when there is the perception of an overlap. The allowances are in fact very different, and have different consequences for the person receiving them.

 

An amount paid by your employer to cover expenses such as accommodation, food, or drinks while you travel for business is typically know as a travel allowance. There is also another type of allowance, called the living-away-from-home allowance (LAFHA), which compensates you for additional expenses when you are required to live away from home due to work duties. So what is the difference between the two?

 

Travel allowances are considered to be assessable income and PAYG withholding may apply. Any expenses incurred on meals and incidental expenses may be deductible against the allowance if certain criteria are met. Living-away-from-home allowance, however, is subject to Fringe Benefits Tax (FBT) and is non-assessable, non-exempt income. Costs of meals and incidental expenses will not be deductible since you are considered to be living away from home and not travelling.

 

There are no specific set criteria to know whether you are receiving a travel or a LAFHA allowance. The circumstances of each case will determine which one is more appropriate.

 

The ATO considers the following factors, although not determinative on their own, to be important:

-time spent working away from home – the longer you spend working away from home, the more likely that you are living away from home and not travelling;

-whether you had a usual place of residence at a previous location – you would only be considered to be living away from home where it is reasonable to conclude that you will return to your previous residence when work at the new location ends;

-the nature of accommodation – if you live in settled accommodation, such as a house, unit or apartment, it may indicate that you are living away from home. This is particularly true if the accommodation has the amenities common to a home, such as an equipped kitchen and laundry. On the other hand, if you are staying in a hotel or in transitory accommodation, then it is more likely that you are not living away from home and are merely travelling;

-whether you are, or can be accompanied by family or visited by family or friends – if your family accompany you during the entirety of your stay at a new location then it is likely that you have relocated and are not living away from home or travelling. All meals, living and incidental expenses will be considered to be private and not deductible.

-conversely, if your family members accompany you for a short stay at your new location and subsequently return to live at the family’s permanent home, while you continue to work at the new temporary location, then it is likely that you will be considered to be living away from home.

 

Usually, your employer should tell you which allowance you’re getting, and a big clue is contained in your payment summary. Travel allowances are usually shown in the allowances section of the payment summary and contribute to your overall taxable income and affect the amount of Medicare levy payable. LAFHA is usually included in the reportable fringe benefits section and does not contribute to your overall taxable income or affect the amount of Medicare levy payable. It does, however, affect other things including the tax offset for eligible spouse superannuation contributions, HELP repayments, child support obligations, and entitlement to certain income-tested government benefits.

 

If you receive a travel allowance, expenses can be deducted without documentary evidence where it is considered by the ATO to be “reasonable”. However, if you have a lot of expenses that may go over the reasonable amount set by the ATO, it would be wise to keep documentary evidence, such as receipts and supporting evidence (eg, bank or credit card statements).

 

Want to find out more?

Do you want to know if your income or other government benefits will be affected by the allowance you receive? Ensure that you don’t get a big surprise when your tax is due. Talk to us about this today.

What Work-Related Car Expenses Can Employees Claim?

If you have special car travel needs for work – like driving between two jobs or different worksites, or carrying bulky equipment – you may be able to claim deductions for some of your car expenses. Are you claiming everything you’re entitled to? Find out what expenses you can deduct and how to correctly calculate your claim.

 

Car expense claims are one of the most popular deductions claimed by individuals at tax time each year, but the ATO says not everyone gets it right. Make sure you know the basic rules for when and how you can make a claim.

These rules apply to a car you own or lease that is designed to carry a load of less than one tonne and fewer than nine passengers. Motorcycles, bigger cars and cars hired intermittently (eg a car hired for a week) have different rules.

 

What car travel can I claim for?

Generally, you can’t deduct costs of travelling between home and your regular workplace. However, you can claim for car travel between two different workplaces or between your home and an alternative workplace that is not your usual workplace (eg a client’s premises).

 

You’re also entitled to claim for travel if you need to drive your own car as part of your job. This might include:

-delivering or collecting items for your employer (but not minor work tasks such as visiting the post office as part of your trip home);
-attending work-related events like meetings or conferences; or
-transporting bulky tools or equipment to work (eg an extension ladder) that your employer requires you to use on the job, provided there is no secure place to leave them at your workplace.

 

Calculating your claim

There are two methods for calculating your claim.

 

You’re free to choose the method that best suits you, and you can choose different methods for different income years.

 

The simplest is the “cents per kilometre” method, which allows you to claim at a rate of 68 cents per kilometre travelled for work purposes (for 2018–2019). This rate is set by the ATO and is considered to reflect average operating costs, including depreciation. There are some key points to know about this method:

 

-You can only claim a maximum of 5,000 kilometres each year, which equates to a maximum deduction of $3,400 (and averages to around 104 kilometres a week for someone working 48 weeks a year).
-You don’t need to keep any expense receipts.
-However, you need to be able to demonstrate how you made a reasonable estimate of your work-related kilometres (for example, using a diary showing work trips you made). The ATO stresses that this is not a “standard” deduction and taxpayers must be able to prove their entitlement.

 

The alternative method is the “logbook method”, which allows you to claim a percentage of your actual car expenses based on work use. This method requires more record-keeping, but may be worthwhile if it gives you a bigger deduction. You should note:

 

-Your work-related percentage is your work-related kilometres as a proportion of total kilometres travelled. To calculate these figures, you must keep a logbook and odometer readings that must record certain information. Fortunately, once you’ve maintained a logbook for the required 12-week period, it’s valid for five years (unless your work-related proportion significantly changes and this requires a new logbook to be started).
-You also need to keep receipts to show your actual expenses, although petrol and oil costs can be based on either actual costs or a reasonable estimate based on odometer readings.
-Expenses you can claim include running costs (fuel, servicing), registration, insurance and decline in value, but not capital costs.

 

Claim with confidence

Car expense deductions require careful record-keeping. In particular, getting your 12-week logbook right is essential to ensuring it remains valid for five years. We’re here to help. Our expert team can check whether you’re claiming your full entitlements and ensure your records will stack up in the event of an ATO audit.

Greater Flexibility For Accessing Company Losses

 

The government plans to give companies greater access to prior year tax losses in a bid to stimulate business innovation. A new alternative to the “same business test” – the “similar business test” – will make it easier for companies that have experienced a significant change in ownership or control to carry forward their losses. While this will provide greater flexibility, companies will need to carefully weigh up a range of factors to determine whether they meet the test.

 

The ability to carry forward tax losses is important for business growth and innovation. A tax loss arises when a taxpayer has more deductions in an income year than assessable income. Being able to carry forward tax losses and deduct these against future assessable income encourages businesses to undertake entrepreneurial or innovative activities that may not initially be profitable.

 

Under the current law, a company that has experienced a significant change in ownership or control may only carry forward its tax losses to a later income year if the company meets the “same business test”. This test broadly requires that the company currently carries on the same business as it did before the change of ownership or control, and that it does not derive any income from a new kind of business or a new kind of transaction that it previously did not enter into. These rules are designed to prevent “loss trading” (ie selling tax losses by selling a loss company to new owners).

 

Recognising that these rules may be too strict and discourage some companies from legitimately innovating or adapting their businesses to meet changing economic circumstances, the government now proposes to introduce an alternative “similar business test” to make it easier to access prior losses.

 

Under the proposed new rules, a company that has experienced a significant change in ownership or control will be able to carry forward its losses if it meets either the existing “same business test” or the new “similar business test”.

 

The word “similar” is not defined in the proposed new rules, and whether a company carries on a “similar” business will be a question of fact. There is no limit on the factors that may be taken into account when determining this. However, the following four factors must be taken into account:

-the extent to which the assets (including goodwill) used in the current business were previously used in the former business;

-the extent to which the activities and operations of the current business match those of the former business;

-the “identity” of the current business compared to the former business – this is a broad-ranging enquiry into all of the characteristics of the business; and

-the extent to which any changes to the former business result from development or commercialisation of assets, products, processes, services or marketing or organisational methods of the former business – this looks at whether any changes are part of the natural organic development of the former business (suggesting similarity) rather than merely reasonable or commercially sensible changes (which would not necessarily support similarity).

 

The ATO has already published draft guidance on its view of the proposed test. It says that “similar” does not mean a similar “kind” of business. It further says that it will be more difficult to meet the test if “substantial new business activities and transactions do not evolve from, and complement, the business carried on before the test time”. On the other hand, new products or functions that develop from the business activities previously carried on are more likely to indicate a similar business.

 

If enacted by Parliament, the proposed new alternative test will apply for tax losses arising from the 2015–2016 income year onwards. The new test will also apply to net capital gains and deductions for bad debts.

 

Make the best use of prior losses

Utilising prior year losses is an important tax planning issue for many businesses. Contact us for advice on the company tax loss rules and to consider whether your business activities are likely to meet the new “similar business test”.

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